Mortgage Rates beginning to Increase

February 26, 2013

Recently, refinancing has been dominating the mortgage market; however, this trend may soon be gone, as interest rates are staying flat.

Many analysts have been stating that the rates would start making a comeback even if it would be a slow pace. At this is starting to occur, however, it could be a long time before we see interest rates at 5% but the trend is showing that finally the rates have hit the bottom.

Last week, interest rates increased. A 30 year fixed mortgage rose to 3.56% up from the previous week of 3.53%. From the beginning of the year until now, rates have increased almost a quarter of a percent.   That may not sound like much but when you consider the amount of money borrowers will repay over the life of the loan it can add up to quite a chunk. This trend is a complete reversal of what was seen last year when interest rates on a 30-year mortgage fell more than a half a percent from 3.9% in January of 2012 to 3.31% by November, which was the lowest interest rate in history.

By no means, does this trend mean that interest rates are going to jump out of sight any time soon that would require a stronger economic growth. Market observers agree that it is very unlikely that interest rates will ever drop to the historical record low of 2012.

Steve Cook, managing editor of Real Estate Market Watch stated, “Refinancing is definitely going to slow down. There are two things that drive [people to] refinance. First is the drop in mortgage rates. Unlike buying a home, where there’s a lot of personal factors, refinancing just depends on mortgage rates, and unless rates get a lot lower we’ll see a slowdown in refinancing.”   Cook explained that the second factor that brings borrowers to refinance is the rise in home prices, which is exactly what mortgage lenders, are hoping will extend the boom in the refinancing market. In the majority of cases, when home prices begin to rise, borrowers often tap the equity with a line of credit or a home equity loan to pay for other purchases. At this time, more than 25% of borrowers are still underwater and with home prices rising, that may not help drive the refinancing boom.

The National Association of Realtors figures show existing home sales along with home prices are still on the rise. In some real estate markets, the homes are selling fast with these homes only on the market for less than 25 days.

A branch manager at Primary Residential Mortgage believes that within the next six month or a bit longer, the mortgage market will go toward a purchase mortgage market for the first time in several years. He stated, “About 50 percent of our business over the last two years has been refinancial’s, but in the last few months we’ve seen more purchases.”

As the interest rates dropped, homeowners rushed to refinance. The rates are now slowly increasing and homebuyers are after the low interest rates and low prices unless these are derailed due to another recession.

Mortgage Rates for the week that ended on Feb. 21, 2013   30 year fixed rate mortgage – 3.56% with an average 0.8 point. One year ago, the rate was 3.95% for a 30 year fixed rate mortgage.

15-year fixed rate mortgage – 2.77% with an average 0.8 point. One year ago, the rate was 3.19% for a 15-year fixed rate mortgage.

A 5 year Treasury indexed hybrid adjustable rate mortgage was 2.64% with an average 0.5 point. One year ago, the rate was 2.80% for a 5-year Treasury-indexed hybrid adjustable-rate mortgage.

1-year Treasury-indexed ARM was 2.65% with an average 0.4 point. One year ago, the rate was 2.73% for a 1-year Treasury-indexed ARM.    

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